Speech to Australian Chamber of Commerce and Industry reception
WHY INNOVATION IS IMPORTANT
MYOB, Richmond, Victoria
16 March 2017
***CHECK AGAINST DELIVERY***
Thank you for inviting me to talk to you this evening about Labor’s vision for innovation.
Innovation has a chequered history in recent Australian politics.
The Prime Minister was very keen on it when he first took on the job. Now he scarcely mentions it.
That’s because he ran up against the great barrier to a successful innovation agenda – the political alienation of a substantial portion of the population.
An effective innovation policy cannot appeal only to people in gentrified inner suburbs.
It must also win support from people in the outer suburbs, in regional cities and in rural areas, from the people most directly affected by stagnant wages growth and lowest full-time employment participation rate in generations.
Winning public support for innovation will come by showing that innovation can create new and better jobs for ordinary people.
To create those jobs, we need businesses that are actively innovating and investing in themselves.
As last year’s Australian Innovation System report noted, businesses that innovate are three times more likely to report increased productivity, employment and training than businesses that don’t innovate.
They are twice as likely to be exporters, and 40 per cent more likely to report increased income and profitability.
But, despite what we know about the benefits of innovation, the Innovation System reports also shows that less than 50 per cent of companies in Australia actually invest in innovation.
That is why a successful innovation agenda requires an active role for government:
Through incentives for firms to invest in R&D.
Through programs to assist with management and workforce training.
By helping businesses obtain the expertise they need to become better at what they do.
Through co-investment grants that help companies expand or retool and invest in new machinery.
By making it easier for startups to obtain venture capital and commercialisation funding.
Through investment in science and research, especially through universities and public agencies, such as CSIRO.
That’s the sort of thing Labor did in government, but many of these measures have now been axed or defunded.
That’s not to say it’s just about the level of funding.
It’s also fostering a culture of innovation, and maintaining a stable policy environment.
And, not least, it’s about ensuring that firms have reliable and affordable access to the resources they need to operate effectively.
The energy crisis caused by the soaring cost of domestic gas supplies, for example, cannot be allowed to continue.
You can’t do business of any kind unless you can be sure that when you flick the switch the lights will come on.
Labor welcomes the fact that the Commonwealth Government is now taking these issues more seriously.
The debate has moved an extraordinary distance since the Government first opened its attack on South Australia’s investment in renewables at the start of the year.
In some respects there’s been a great turnaround. Suddenly renewables and public ownership are back in favour.
However, the Government’s agreement with the gas companies yesterday is vague and appears to go to spot market contributions for generation in peak periods.
As the Australian Industry Group’s Innes Willox has said in the papers this morning:
“The test for gas exporters will be whether they can stabilise the domestic contract market, not just tip some gas into the spot market from time to time”.
It’s clear that a great deal more work still needs to be done.
As to the Snowy Hydro announcement overnight, we’ll hold this Government to account that they’ll have a feasibility study completed by Christmas, but I’m sceptical that work will start early next year.
Even then, on available estimates it will take at least 7 years to be completed.
And that’s the problem: the crisis in the energy system for our manufacturers is now.
The effects will be felt over the next 12-18 months.
We simply do not have the luxury of time.
The Government has done nothing on that score, other than share some fine words with the gas companies.
The most immediate threat is to energy-intensive manufacturing, but other sectors are also affected.
Last year 39 per cent of services businesses and 36 per cent of construction businesses experienced price rises.
And the outlook for 2017 is gloomy, with 48 per cent of services businesses and 63 per cent of construction businesses saying they expect further rises.
Most businesses won’t make serious, longer-term investments unless governments create a secure environment in which to do business.
I know that MYOB’s latest Business Monitor survey has reported increasing confidence among SMEs, in particular.
That is a welcome sign of recovery from the upheavals of the Global Financial Crisis.
But it is also true that the frequent reviews and reversals of policy – along with the constant churn of Government Ministers and the hollowing out of the Department of Industry – have made it difficult for firms to plan effectively.
That is creating a level of despondency among stakeholders of the innovation system that I haven’t seen before.
That’s really alarming.
Many of you, as MYOB clients and ACCI members, will be concerned at the fate of the R&D Tax Incentive, the most important measure integrating the tax and innovation systems.
The good news is that despite media reports of a Tax Office blitz on claims for software development, the entitlements have not changed.
The grain of truth in those reports, however, is that the ATO is obviously intent on reining in benefits as much as it legally can.
It would not be doing so unbidden by the Government.
The Government has already introduced a $100 million cap on eligible expenditure and it has cut the incentive by 1.5 percentage points.
These changes happened while the so-called “three F” review of the incentive was under way.
The review, conducted by Dr Alan Finkel, Mr Bill Ferris and John Fraser, has reported but the Government has not responded to their recommendations.
Among those recommendations is a $2 million cap on the amount firms can claim as part of the refundable offset.
That proposal is causing a great deal of anxiety in the startup and biotech sectors.
Also proposed is an intensity test, under which firms would only receive the incentive on their annual R&D above a defined intensity threshold and up to the $100 million cap.
The proposal assumes that the proportion of a firm’s budget allocated to R&D is a measure of the effectiveness of its R&D activity.
That is nonsense, of course.
We all know that R&D can be highly intensive and valuable even though the actual spend is relatively small.
I’m pleased to see recommendations in the review about a premium rate for research collaborations.
However Labor is very concerned about recommendations that undermine the R&D Tax Incentive and that are a disincentive to innovation.
On the future of the R&D Tax Incentive, Labor shares the concerns of many ACCI members.
Now of course we won’t always be in fierce agreement.
Some of you might be concerned at reports of our opposition to the Government’s proposed corporate tax cuts.
Yes, we make no apologies for opposing a $50 billion cut for the largest businesses given current spending priorities.
But we do not oppose cuts for SMEs – and that is most businesses.
I’d put to you that we have more common ground than media reporting sometimes suggests.
And that matters, because all of us must focus on the big picture if we are to overcome the alienation I spoke about earlier.
The big picture of an Australia with more jobs and more investment.
An Australia in which no one is left behind.